Problem
The Langs are planning to purchase their first home. Their gross monthly income is $7,000. They have two loans: a car loan ($400/mo.) and student debt ($200/mo.) Their parents are gifting them $65,000 for the down payment, so they just have to worry about the mortgage. They are applying for a 30- year, 5.5% mortgage. The bank's rule requires a maximum of 28% of gross monthly income be used to amortize the mortgage and 36% of the gross monthly income to amortize the mortgage plus the other installment debt. Ignore property taxes and insurance.
Under the bank's rules:
1. How much can the maximum monthly mortgage be?
2. How much can the total mortgage be? (Hint: use the PMT function)
3. What is the total maximum price of a home - mortgage plus gift?
4. What are the key benefits (tax and otherwise) the Langs expect to get from buying the home?